Not all the news is bad. Despite the recession and despite all the layoffs, real personal income rose 1.2% in the 12 months ended January, and in the six months ended in January, real incomes rose at a pretty impressive 3.9% annual rate. To be sure, a good part of the rise in inflation-adjusted income has come from a decline in inflation (which in turn was mainly due to a big drop in energy prices), but the fact remains that real incomes are rising. This is consistent with the view I've held for awhile now that we've seen the worst of the bad news. Fewer people are working, but overall there are still an awful lot of people working in an increasingly productive fashion (since rising productivity is the only way for real incomes to rise).
Hi Scott,
ReplyDeleteAbout a month ago, I saw a convincing analysis of why average (median) wages were rising in this downturn: The layoffs have been biased towards lower wage jobs. In other words, when these lower wage workers lose their jobs, the average (median) wage calculation does not replace them with a zero but simply removes them from the calculation. Does this data showing rising personal income suffer from the same phenomena?
Thanks,
Mark
Productivity has risen over the past year, so it stands to reason that companies have been firing the least productive of their workers, and that probably means the ones in the bottom range of the pay scale. Workers not laid off are likely working harder and are thus more productive in aggregate. This is really the only way to reconcile the fact that real incomes are up while employment is down.
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